Planning for Financial Growth

Written by Diane M. Calabrese | Published November 2024

So slender are the resources on which some businesses launch that experts refer to “lean” business plans. Then, there’s the colloquialism of starting on a shoestring.

But a company cannot hang by a thread forever. At some point a startup will either fail or flourish. Initially flourishing is in the form of sustainability. The owner can take a salary that meets the needs for a regular income stream and maintain the many requirements of the business (e.g., insurance, loan repayment, and inventory).

Eventually, a company experiences financial growth. Every expense that must be met is met, and still there is money available. Deciding what to do with the capital constitutes planning for financial growth.

Wouldn’t a company that’s in a sustaining-itself phase be looking too far ahead—even exuding unrestrained optimism—by a plan for what to do when financial growth accelerates?

Not at all. Prudence requires such a structured approach.

It takes more than extra capital to make a venture work. Whether it’s a very large commercial cleaning contract in the offing or a new customer wanting to create a large, repeating order, the components for seizing the opportunity do not organize themselves.

“I used to say that ‘all we need is a big order,’” says Jeff Theis, president and CEO of ProPulse—a Schieffer Company in Peosta, IA. “In reality, a big order can sink you. The preparation for business growth—that is, the big order or orders—requires a strategic plan with measurable benchmarks.”

Having a set of markers in the early days of a business constitutes a foundation for building the business. “At some point the benchmarks become predictable and ultimately repeatable and/or scalable,” explains Theis. “In other words, one can predict how growth affects all systems and resources and plan for those events.”

With benchmarks in place, a company has a firm picture of its status at any point in time. With that snapshot it can make informed decisions.

“An assessment of resources needed will determine how quickly one can scale and where additional resources need to be applied,” says Theis. “So, if the resources are human, financial, physical space, technological, or others, the severely limited resource can very well hamstring the growth cycle.”

In fact, explains Theis, the company’s most limited resource becomes the one of greatest significance, “The overall growth will be limited by the single most restricted resource.”

Each company has a unique vision, but there are standard parts to a business that transcend companies. (Businesses are analogous to houses, which come in many shapes and sizes but in almost every case have certain structural elements in common such as plumbing, electrical systems, joists, etc.)

Theis sees the vision of a business owner as a target. “In the end, the target may vary by individual; but for us, the goal has always been to achieve sustainable, profitable growth on an ongoing basis,” he explains.

“So, the lesson is pay attention at the onset and define what ‘growth’ actually means to you as the president or CEO or owner, and then balance resource demands for the optimum result,” says Theis.

Resource Demands

A traditional business plan—the sort that a start-up might take to a potential lender—includes a pithy description of the essential elements of the company envisioned. Elements include purpose (product and/or service), organization (sole operator, employees, etc.), and anchor point (digital world, brick and mortar, home, or some combination).

According to the U.S. Small Business Administration (SBA.gov), if a business launch requires financing (some of which might be obtainable through that government entity), the growth plans for the business should also be included. Thus, lenders want to know how a company plans to handle financial growth.

Banks have a particular interest in financial growth plans because more than getting loans repaid, they want to establish long-term relationships with successful businesses. Banks and private equity firms want to make loans to credit-worthy companies as they expand with locations, buildings, products, and services.

As profit grows, an owner must be thinking about how best to use the profit; options could include profit sharing, expansion, savings, etc. Does the company have a plan for capital expenditures that maximizes tax advantages and minimizes downtime that comes from waiting too long to replace systems and equipment? And is the company considering changes in insurance needs?

In fact, though, an owner must be thinking about all the same things at the inception of a business. That’s why business plans include a market analysis and marketing strategy, organizational structure, and financial projections.

A business plan requires a prospective owner to think through all the demands that will be placed on a company’s resources. For example, adding an employee when a particular revenue benchmark is met consumes more than just the hourly or salaried wage for the employee. There is the cost of the ancillaries to the employer from required workers’ compensation to FICA contributions. Training and hiring costs must also be factored in.

Having a reliable projection for the cost of adding an employee enables an owner to weigh the addition against upgrading a tool that increases the efficiency of existing employees. Planning for financial growth is part of readiness.

Common Sense And Tools

Readiness encompasses planning for the best (financial growth) and the worst (economic downturns) and business interruptions (natural disasters). We begin this section with the reminder because preparation for Hurricane Francine, having arrived on the Gulf Coast as we write, impeded the response of a source we contacted about repair tools and service.

As it happens, the source, Roy Pennington, owner of Hi Pressure Cleaning Systems Inc. in Houma, LA, gives us comments relevant to planning in general (part of growing financially). His comment is a perfect fit for the field, the office, and every dimension of business.

“Common sense is the one tool that you cannot function without in the field because you do not know what you are going to walk into,” says Pennington. “You must be prepared to adapt.”

Choosing the correct tool, having the proper tool on hand, becomes a metaphor (back to the house building analogy used earlier) for a business with a plan. “I tend to get seriously concerned when I see a service tech walking around with a 16-inch sledgehammer in his hand,” says Pennington. “Good things rarely happen when ‘what we need is a bigger hammer.’”

Tapping Pennington’s observation about tools to extend the metaphor about financial planning, a successful business aims for precision. Use the correct tool for the job and make the best use of the available information for the decision.

The most optimally arranged service and repair tools, like the most structured plan for financial growth, are always open to being altered or amended by experience. For instance, on the tool side Pennington explains he has “two great in-house tools” that were adopted because experience demonstrated how useful they would be.

“One is a simple ‘hydraulic, manual pump lift table’ from a junk store,” says Pennington. “We add four-inch aluminum ‘wings’ to each side to enlarge the deck, and they are the perfect adjustable height to work on cold water units without bending over. Additionally, we have a ‘motorcycle lift’ that allows us to roll heavier equipment and lift it up, so it is easier to work on.”

The short of it is to choose the tool that works best. Tailor the tool to the needs of a company whether for repairs or financial planning.

Assistance

ASCENT from the SBA ( https:// ascent.sba.gov/) is a relatively new online resource to assist with the many elements of business—from starts to growth. Among the tools available from ASCENT are “Financial Forecasting” and “Calculate & Analyze Your Financial Resources,” which are perhaps two of the most valuable documents ever disseminated (at no charge) by SBA.

For a fledgling business that aims to forecast—plan for financial growth—just the task of identifying every cost to consider can be daunting. The financial forecasting document from ASCENT can serve as a template.

For instance, expenses should include the cost of everything that extracts payments from the incoming revenue, even the periodic expenses such as outside services, accounting and legal, and depreciation. Also imperative to include among expenses is the reserve maintained for contingencies.

Contingencies may be natural disasters or a short power outage that disrupts work. Or they may be a sewer replacement or HVAC repair that “comes out of nowhere.”

The calculate-and-analyze tool from ASCENT offers one path to benchmarking. It demonstrates how to compute the financial ratios (e.g., debt-to-equity, gross profit margin, and return on assets) that allow a company to compare its performance at present to a point in time in the past. It also illustrates how the ratios can be used to compare a company to the competition.

It might be possible to launch a business on a shoestring budget (with a lot of “sweat equity”), but a business can only be sustained and grow if liabilities plus equity add up to assets on a balance sheet.